SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF EARLIEST REPORTED EVENT - March 30, 2000
SMART GAMES INTERACTIVE, INC.
(Exact name of Registrant as specified in its charter)
Delaware 000-23672 34-1692323
(State or other jurisdiction of (Commission (IRS Employer
incorporation or organization) File Number) Identification Number)
1612 NORTH OSCEOLA AVENUE
CLEARWATER, FLORIDA 33755
(Address of Registrant's principal executive offices)
(727) 443-3434
(Registrant's telephone number, including area code)
(727) 443-5240
(Registrant's facsimile number, including area code)
2075 Case Parkway South
Twinsburg, OH. 44087
(Former name or former address, if changed since last report)
ITEM 1.
CHANGE IN CONTROL OF REGISTRANT
Sale of a Majority Interest
On March 30, 2000, the board of directors unanimously approved the sale of
15,000,000 newly issued shares of the Registrant's $0.0002 par value common
stock to Tobem Investments Limited ("Tobem") for a price of $0.005 per share, or
$75,000 in the aggregate. The offer and sale to Tobem were made in reliance on
the exemption from registration set forth in Securities and Exchange Commission
Regulation S and the $75,000 purchase price was paid to the Registrant in cash
from funds belonging to Tobem. The shares issued to Tobem in connection with the
transaction are "restricted securities" as that term is defined in Securities
and Exchange Commission Rule 144 and all certificates representing such shares
have been imprinted with an appropriate restrictive legend. Prior to the
transaction, neither Tobem nor any of its officers, directors or affiliates had
any direct or indirect interest in the Registrant.
After giving effect to the Tobem transaction, the Registrant has a total
of 27,648,244 shares of common stock issued and outstanding and the 15,000,000
shares of common stock held by Tobem represent approximately 54% of the total
voting power held by all stockholders of the Registrant. In light of the
foregoing, it is anticipated that Tobem will have sufficient voting power to
elect all members of Registrant's Board of Directors and control substantially
all corporate actions and decisions for an indefinite period of time. As a
result, the other stockholders will not have an effective voice in the
management of the Registrant.
Changes in Board of Directors
In connection with the sale of a majority interest to Tobem, the board of
directors appointed Tobem's nominee, Sally A. Fonner of Clearwater, Florida, to
serve as a member of the Registrant's board of directors until the next annual
meeting of the stockholders, or until her successor is elected and qualified.
The board of directors also amended Article II, Section 2 of the Registrant's
By-laws to read in its entirety as follows:
Section 2. Number, Method of Election Terms of Office of Directors. The
total number of Directors constituting the entire Board of Directors shall
be not less than one (1) nor more than nine (9), with the then-authorized
number of Directors being fixed from time to time solely by or pursuant to
a resolution passed by the Board of Directors, provided, however, that the
total number of Directors shall be not less than three (3) during any
period when the total stockholders' equity of the Corporation exceeds
$100,000. Each Director shall hold office until he resigns from office, is
removed from office by the affirmative vote of the holders of a majority in
interest of the Corporation's common stock or his successor is elected and
qualified.
After approving the stock sale to Tobem, the appointment of Ms. Fonner to
serve as a member of the board of directors and the amendment of the by-laws,
James Chuma, Peter Waite and Donald Miller resigned their respective positions
as members of the Registrant's board of directors effective immediately.
For most of the last 15 years, Ms. Fonner has worked as an independently
employed business consultant. She graduated from Stephens University in 1969
with a Bachelor of Arts Degree in Social Systems. After a stint in the private
sector, Ms. Fonner returned to further her education and obtained her MBA Degree
from the Executive Program of the University of Illinois in 1979. For the past
five years Ms. Fonner has been engaged in the complex field of restructuring
public companies and arranging business combination transactions. Ms. Fonner has
previously served as the sole director of and arranged business combinations for
the following public companies:
o Telemetrix, Inc. (TLXT), f/k/a Arnox Corporation.
o eNote.com, Inc. (ENOT), f/k/a Webcor Electronics, Inc.
o Dupont Direct Financial Holdings, Inc. (DIRX) f/k/a Marci International
Imports, Inc.
o Liberty Group Holdings, Inc. (LGHI), f/k/a Bio Response, Inc.
Ms. Fonner has no power to direct or cause the direction of the management
and policies of Tobem, whether through the ownership of voting securities, by
contract or otherwise. Except as described below, Sally A. Fonner has no direct
or indirect ownership or other interest in the shares of the Registrant's common
stock purchased by Tobem.
Project Management Agreement
On March 31, 2000, the Registrant and Tobem entered into a Project
Management Agreement (the "PMA") with Capston Network Company ("Capston"), a
Delaware corporation owned by Ms. Fonner, the sole member of the Registrant's
board of directors. Under the PMA, Capston is specifically authorized and
obligated to (i) manage the ministerial accounting and administrative functions
associated with preparing and filing the Registrant's required reports under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (ii) negotiate
the payment and/or compromise of the outstanding liabilities of the Registrant,
(iii) locate and negotiate a business combination agreement with a suitable
privately held company, and (iv) pay, at its sole risk, the costs and expenses
associated with maintaining the Company's status as a reporting issuer under the
Exchange Act and locating and investigating business combination opportunities.
Capston is also specifically authorized to purchase for its own account or
arrange for the sale to third parties of sufficient additional shares of the
Company's common stock to provide sufficient cash resources for the satisfaction
of the Company's outstanding obligations, provided that the net purchase price
payable in connection with the issuance of additional shares shall not be less
than $0.01 per share.
As its principal compensation for services rendered pursuant to the PMA,
Tobem has agreed to sell to Capston or its designees 12,000,000 shares of the
Registrant's common stock at a price of $0.005 per share, or $60,000 in the
aggregate. The purchase price for such shares will be paid to Tobem in cash on
before the closing date of a business combination of the type described below.
Except as specifically provided in the PMA, Capston and its affiliates will not
be entitled to receive any common stock or other securities of the Registrant,
or any other options, warrants appreciation rights or similar instruments that
will or might entitle Capston or any of its affiliates to receive additional
shares of common stock in the future. The PMA also provides that Capston shall
be entitled to negotiate a reasonable " acquisition fee" or "non-accountable
expense allowance" that will be payable to Capston solely by an unrelated
third-party who elects to enter into a business combination with the Registrant.
Neither the Registrant nor any of its Stockholders shall have any claim to or
interest in any fees or expense allowances that are paid to Capston by any third
party.
The sale of 12,000,000 shares of common stock to Capston under the PMA will
not result in the issuance of additional shares by the Registrant. It will,
however, reduce the number of shares held by Tobem from 15,000,000 to 3,000,000,
and increase the number of shares held by Capston or its designees from zero to
12,000,000. Capston does not presently intend to close on its purchase of shares
from Tobem until immediately before the closing of a business combination of the
type described below. If Capston changes its plans and closes its purchase of
the shares before the closing of a business combination, such a purchase may
constitute a change in control.
Tobem made a $25,000 unsecured loan to Capston in February 2000. Except for
the loan, there was no prior relationship between Tobem and Capston. Tobem is
not, directly or indirectly, controlling, controlled by or under common control
with Capston. Tobem does not have the power to direct or cause the direction of
the management and policies of Capston, whether through the ownership of voting
securities, by contract or otherwise.
Potential Business Combination
The successful completion of a business combination of the type described
below will likely result in a change of control resulting from the issuance of a
large number of shares of the Registrant's authorized and unissued Common Stock.
Any such change in control is also likely to result in the resignation or
removal of the Registrant's current officers and directors. In such an event, no
assurance can be given as to the experience or qualifications of successor
management in the operation of the business, assets or property of the combined
entity, although it is likely that successor management will have greater
experience in the business of the combined entity than Ms. Fonner, Capston and
their consultants.
Item 5.
OTHER EVENTS
Proposed Operations
At the date of this Current Report on Form 8-K, the Registrant has
liabilities that are significantly greater than its total assets, and has had no
active management or ongoing operations since September 1997. Nevertheless,
Capston believes that it may be possible to recover some value for the
Shareholders through the implementation of a plan whereby the Registrant will be
restructured as a "public shell" for the purpose of effecting a business
combination transaction with a suitable privately-held company ("Target
Company"). In general, Capston believes the Registrant will offer owners of a
Target Company the opportunity to acquire a controlling ownership interest in a
public company at substantially less cost than would otherwise be required to
conduct an initial public offering.
Under the plan developed by Capston, the Registrant will be used as a
corporate vehicle to seek, investigate and, if the results of such investigation
warrant, effect a business combination with an existing Target Company that
seeks the perceived advantages of a publicly held corporation. Before such a
business combination can be effected, however, there are a number of preliminary
steps. The specific actions that Capston intends to take include:
File Delinquent SEC Reports--the Registrant has not yet filed its Form
10-QSB for the period ended September 30, 1999 or its Form 10-KSB for the
year ended December 31, 1999. The Registrant's auditors are presently
working on the preparation of its financial statements and it is
anticipated that the delinquent Form 10-QSB for the period ended September
30, 1999 will be filed prior to April 20, 2000 and the delinquent Form
10-KSB for the year ended December 31, 1999 will be filed prior to April
30, 1999.
Negotiate Creditor Agreements-- at December 31, 1998, the Registrant had no
material assets and substantial unpaid liabilities. Therefore, the
Registrant was insolvent during the entire fiscal year ended December 31,
1999.. Before the Registrant will be suitable for use as a public shell,
Capston will need to negotiate the payment and/or compromise of such
outstanding liabilities. There can be no assurance that Capston will be
able to pay and/or compromise all of the Registrant's liabilities with the
available resources of the Registrant. If Capston is unable to negotiate
suitable payment or compromise agreements with a significant majority of
the Registrant's creditors, it may be impossible to negotiate a business
combination with an acceptable Target Company.
Negotiate Business Combination--if Capston is able to negotiate suitable
payment or compromise agreements with the Registrant's creditors, it must
then seek, investigate and, if the results of such investigation warrant,
attempt to negotiate business combination with an existing Target Company.
Effect Required Corporate Changes--before proceeding to closing on a
proposed business combination, Capston will be required to effect a number
of material changes in the Registrant's corporate structure. At the date of
this Current Report on Form 8-K, Capston expects that it will be required
to:
a. effect a reverse split of at least 1 for 40 and perhaps as much as 1
for 45;
b. authorize the issuance of sufficient shares to facilitate the business
combination and the go-forward activities of the combined entities;
c. change the Registrant's name to a one selected by the Target Company;
d. authorize stock option and other incentive plans for the combined
entities; and
e. effect any other reasonable structural changes that are required by the
Target Company as a condition of the business combination.
Since Tobem owns a controlling interest in the Registrant, it is expected
that all required changes will be effected with the written consent of Tobem.
Under Delaware law, all corporate changes that would otherwise require a
stockholder vote may be effected without a meeting and without notice if a
majority stockholder consents in writing to the proposed action. Accordingly, it
is anticipated that the other shareholders will not have an opportunity to
analyze the various business opportunities presented to the Registrant, or to
approve or disapprove the terms of any business combination transaction that may
be negotiated.
The Registrant's potential success will be wholly dependent on the efforts
and abilities of Ms. Fonner and Capston who will have virtually unlimited
discretion in searching for, negotiating and entering into a business
combination transaction with a Target Company. Ms. Fonner and Capston have had
limited experience in the proposed business of the Registrant. Although Ms.
Fonner and Capston believe that the Registrant will be able to enter into a
business combination transaction within 3 to 6 months from the date of this
Current Report on Form 8-K, there can be no assurance as to how much time will
elapse before a business combination is effected, if ever. The Registrant will
not restrict its search to any specific business, industry or geographical
location, and the Registrant may participate in a business venture of virtually
any kind or nature.
Ms. Fonner and Capston anticipate that the selection of a Target Company
for the Registrant will be complex and extremely risky. Because of general
economic conditions, rapid technological advances being made in some industries,
and shortages of available capital, Ms. Fonner and Capston believe that there
are numerous privately-held companies seeking the perceived advantages of being
a publicly traded corporation. Such perceived advantages include facilitating
debt financing or improving the terms on which additional equity may be sought,
providing liquidity for the principals of the business, creating a means for
providing incentive stock options or similar benefits to key employees,
providing liquidity for all Shareholders and other factors.
Potential business opportunities may occur in many different industries
and at various stages of development, all of which will make the task of
comparative investigation and analysis of such business opportunities extremely
difficult and complex. Ms. Fonner and Capston anticipate that the Registrant
will be able to participate in only one business venture. This lack of
diversification will not permit the Registrant to offset losses from one venture
against gains from another. Moreover, due to the Registrant's lack of any
meaningful financial, managerial or other resources, Ms. Fonner and Capston
believe the Company will only be viewed as a suitable business combination
partner for companies which have substantially greater financial and managerial
resources than the Registrant. Therefore, the Registrant's relative bargaining
power may be limited.
Summary Description of Plan
At the date of this Current Report on Form 8-K, the Registrant has
27,648,244 shares of Common Stock issued and outstanding. Since Tobem and
Capston believe that (i) the owners of a Target Company will ordinarily want to
control at least 90% of the Registrant's Common Stock upon the completion of a
business combination transaction, and (ii) an ultimate capitalization in the
7,000,000 to 12,000,000 share range is ideal for a small public company, Tobem
and Capston believe that it will be in the best interest of the Registrant and
its Shareholders to effect a reverse split in the range of 1 new share for every
40 to 45 shares presently outstanding. Tobem and Capston believe such action
will optimize the number of shares issued and outstanding after a business
combination transaction, result in a higher reported market price for the stock
of the combined entity, and reduce the market volatility of the stock of the
combined entity. These factors, in turn, are expected to enhance the overall
perception of the stock among institutional investors and brokerage firms and
enhance the combined entity's ability to raise additional equity capital.
The determination of the number of shares to be issued in connection with
a business combination transaction is not an exact science and entails a great
deal of subjective business judgment. In arriving at an optimal capital
structure for a business combination transaction, Capston will ordinarily
evaluate the strengths, weaknesses and growth potential of a Target Company
against similarly situated publicly-held companies in the same market segment.
Based on this analysis, Capston will then attempt to estimate the stabilized
market capitalization that the Target Company can expect to achieve under
reasonably foreseeable circumstances. This value will then be risk weighted by
an appropriate factor and used to determine the number of shares that can be
issued by the Registrant if the goal is to reach a target stabilized stock price
of $5 to $10 per share. In the case of a Target Company that can only reasonably
expect a stabilized market capitalization of $10 million to $15 million, the
number of shares issuable to the owners of the Target Company will be much
smaller than would be the case if the Target Company could reasonably expect a
stabilized market capitalization of $50 million to $75 million, or more. In any
event, Capston does not intend to enter into a transaction where it expects the
stabilized market price of the Common Stock to be less than $5 per share. There
can be no assurance, however, that Capston will be successful in meeting this
performance benchmark, that its subjective business judgments will prove to be
accurate or that its estimate of the stabilized market capitalization that a
Target Company can expect to achieve will prove to be reasonable.
Pending Discussions
Capston is presently involved in preliminary negotiations with the owners
of an established Chinese language internet portal and a Chinese language
internet search engine. While management of the Target Company has expressed a
desire to move toward a business combination transaction, the negotiation of a
definitive agreement will not be possible until the Registrant's SEC Reports are
brought up to date and its liabilities are either paid or compromised. Since
there is no assurance that Capston will be able to negotiate suitable payment or
compromise agreements with the Registrant's creditors, there is no assurance
that the pending discussions will result in the successful conclusion of a
business combination or that the common stock of the Registrant will ever have
any value.
ITEM 7.
FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits.
3.1 Amendment to the By-laws of Smart Games Interactive, Inc.
dated March 30, 2000
10.1 Stock Purchase Agreement and Investment Representation Letter
between Tobem Investments Limited and the Registrant dated
March 28, 2000
10.2 Project Management Agreement between the Registrant, Tobem
Investments Limited and Capston Network Company dated March
31, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SMART GAMES INTERACTIVE, INC.
April 17, 2000
By: /s/
----------------
Sally A. Fonner, Chief Executive Officer
and Sole Director